Documented Problem Solving: Calculating Gross Domestic Product

Summary

Gross domestic product (GDP) was introduced in class as a way to determine the value of a country's output. Consumption, investment, government spending, and net exports were discussed as the components of GDP. Items that are excluded from GDP were also discussed.

Learning Goals

Students will:

identify the components of GDP;

determine items that are not part of GDP;

calculate GDP.

Context for Use

This activity is appropriate for a Principles of Economics course, and can be used as a review in upper level courses. It will work at any size or type of institution. In writing the documented problem solution, the emphasis is on the process students employ versus the correct answer.

Description and Teaching Materials

A MC, T/F or short answer question can be used for this activity. Below is a short answer question.

Use the information below to calculate GDP.

Consumer spending = $200 million

Investment spending = $55 million

State and local government spending = $120 million

Federal government spending = $80 million

Imports = $50 million

Exports = $45 million

Income taxes = $100 million

Answer: $450 million

Teaching Notes and Tips

In order to calculate GDP, students must recognize that imports are not part of GDP but instead must be subtracted from GDP. They must also understand that governmnt spending includes spending at the local, state and national levels, and that income taxes are not part of GDP.

Assessment

Students are not asked to merely calculate the correct answer, but instead they are asked to write the process they employed to arrive at the answer. For example:

First I reviewed the definition of GDP including the components.

Based on my notes, in order to calculate GDP I should add consumption, investment, government spending and net exports.

Income taxes are not a component of GDP.

Government spending includes spending at the federal level of $80 million and state and local spending of $120 million.

Net exports is equal to exports of $45 million minus imports of $50 million.

Imported goods are part of another country's GDP.

GDP = consumption + investment + government spending + net exports.

In this case, $200 million + 55 million + $120 million + $80 million + $45 million = $500 million. Then imports of $50 million is subtracted to get GDP = $450 million.